The McGraw-Hill Series Economics essentials of economics brue, McConnell, and Flynn Essentials of Economics

Part One
Single-Equation Regression Models
1.3. Table 1.4 gives the foreign exchange rates for nine industrialized countries for the
years 1985–2006. Except for the United Kingdom, the exchange rate is defined as
the units of foreign currency for one U.S. dollar; for the United Kingdom, it is defined
as the number of U.S. dollars for one U.K. pound.
a.
Plot these exchange rates against time and comment on the general behavior of the
exchange rates over the given time period.
b.
The dollar is said to 
appreciate
if it can buy more units of a foreign currency.
Contrarily, it is said to 
depreciate
if it buys fewer units of a foreign currency. Over
the time period 1985–2006, what has been the general behavior of the U.S. dollar?
Incidentally, look up any textbook on macroeconomics or international economics
to find out what factors determine the appreciation or depreciation of a currency.
1.4. The data behind the M1 money supply in Figure 1.5 are given in Table 1.5. Can you
give reasons why the money supply has been increasing over the time period shown in
the table?
1.5. Suppose you were to develop an economic model of criminal activities, say, the hours
spent in criminal activities (e.g., selling illegal drugs). What variables would you con-
sider in developing such a model? See if your model matches the one developed by the
Nobel laureate economist Gary Becker.
18
TABLE 1.4
Exchange Rates for Nine Countries: 1985–2006
South
United
Year
Australia
Canada
China P. R.
Japan
Mexico
Korea
Sweden
Switzerland
Kingdom
1985
0.7003
1.3659
2.9434
238.47
0.257
872.45
8.6032
2.4552
1.2974
1986
0.6709
1.3896
3.4616
168.35
0.612
884.60
7.1273
1.7979
1.4677
1987
0.7014
1.3259
3.7314
144.60
1.378
826.16
6.3469
1.4918
1.6398
1988
0.7841
1.2306
3.7314
128.17
2.273
734.52
6.1370
1.4643
1.7813
1989
0.7919
1.1842
3.7673
138.07
2.461
674.13
6.4559
1.6369
1.6382
1990
0.7807
1.1668
4.7921
145.00
2.813
710.64
5.9231
1.3901
1.7841
1991
0.7787
1.1460
5.3337
134.59
3.018
736.73
6.0521
1.4356
1.7674
1992
0.7352
1.2085
5.5206
126.78
3.095
784.66
5.8258
1.4064
1.7663
1993
0.6799
1.2902
5.7795
111.08
3.116
805.75
7.7956
1.4781
1.5016
1994
0.7316
1.3664
8.6397
102.18
3.385
806.93
7.7161
1.3667
1.5319
1995
0.7407
1.3725
8.3700
93.96
6.447
772.69
7.1406
1.1812
1.5785
1996
0.7828
1.3638
8.3389
108.78
7.600
805.00
6.7082
1.2361
1.5607
1997
0.7437
1.3849
8.3193
121.06
7.918
953.19
7.6446
1.4514
1.6376
1998
0.6291
1.4836
8.3008
130.99
9.152
1,400.40
7.9522
1.4506
1.6573
1999
0.6454
1.4858
8.2783
113.73
9.553
1,189.84
8.2740
1.5045
1.6172
2000
0.5815
1.4855
8.2784
107.80
9.459
1,130.90
9.1735
1.6904
1.5156
2001
0.5169
1.5487
8.2770
121.57
9.337
1,292.02
10.3425
1.6891
1.4396
2002
0.5437
1.5704
8.2771
125.22
9.663
1,250.31
9.7233
1.5567
1.5025
2003
0.6524
1.4008
8.2772
115.94
10.793
1,192.08
8.0787
1.3450
1.6347
2004
0.7365
1.3017
8.2768
108.15
11.290
1,145.24
7.3480
1.2428
1.8330
2005
0.7627
1.2115
8.1936
110.11
10.894
1,023.75
7.4710
1.2459
1.8204
2006
0.7535
1.1340
7.9723
116.31
10.906
954.32
7.3718
1.2532
1.8434
Source: 
Economic Report of the President,
2007, Table B–110, p. 356.
18
G. S. Becker, “Crime and Punishment: An Economic Approach,” 
Journal of Political Economy,
vol. 76,
1968, pp. 169–217.
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Chapter 1
The Nature of Regression Analysis
31
1959:01
138.8900
139.3900
139.7400
139.6900
140.6800
141.1700
1959:07
141.7000
141.9000
141.0100
140.4700
140.3800
139.9500
1960:01
139.9800
139.8700
139.7500
139.5600
139.6100
139.5800
1960:07
140.1800
141.3100
141.1800
140.9200
140.8600
140.6900
1961:01
141.0600
141.6000
141.8700
142.1300
142.6600
142.8800
1961:07
142.9200
143.4900
143.7800
144.1400
144.7600
145.2000
1962:01
145.2400
145.6600
145.9600
146.4000
146.8400
146.5800
1962:07
146.4600
146.5700
146.3000
146.7100
147.2900
147.8200
1963:01
148.2600
148.9000
149.1700
149.7000
150.3900
150.4300
1963:07
151.3400
151.7800
151.9800
152.5500
153.6500
153.2900
1964:01
153.7400
154.3100
154.4800
154.7700
155.3300
155.6200
1964:07
156.8000
157.8200
158.7500
159.2400
159.9600
160.3000
1965:01
160.7100
160.9400
161.4700
162.0300
161.7000
162.1900
1965:07
163.0500
163.6800
164.8500
165.9700
166.7100
167.8500
1966:01
169.0800
169.6200
170.5100
171.8100
171.3300
171.5700
1966:07
170.3100
170.8100
171.9700
171.1600
171.3800
172.0300
1967:01
171.8600
172.9900
174.8100
174.1700
175.6800
177.0200
1967:07
178.1300
179.7100
180.6800
181.6400
182.3800
183.2600
1968:01
184.3300
184.7100
185.4700
186.6000
187.9900
189.4200
1968:07
190.4900
191.8400
192.7400
194.0200
196.0200
197.4100
1969:01
198.6900
199.3500
200.0200
200.7100
200.8100
201.2700
1969:07
201.6600
201.7300
202.1000
202.9000
203.5700
203.8800
1970:01
206.2200
205.0000
205.7500
206.7200
207.2200
207.5400
1970:07
207.9800
209.9300
211.8000
212.8800
213.6600
214.4100
1971:01
215.5400
217.4200
218.7700
220.0000
222.0200
223.4500
1971:07
224.8500
225.5800
226.4700
227.1600
227.7600
228.3200
1972:01
230.0900
232.3200
234.3000
235.5800
235.8900
236.6200
1972:07
238.7900
240.9300
243.1800
245.0200
246.4100
249.2500
1973:01
251.4700
252.1500
251.6700
252.7400
254.8900
256.6900
1973:07
257.5400
257.7600
257.8600
259.0400
260.9800
262.8800
1974:01
263.7600
265.3100
266.6800
267.2000
267.5600
268.4400
1974:07
269.2700
270.1200
271.0500
272.3500
273.7100
274.2000
1975:01
273.9000
275.0000
276.4200
276.1700
279.2000
282.4300
1975:07
283.6800
284.1500
285.6900
285.3900
286.8300
287.0700
1976:01
288.4200
290.7600
292.7000
294.6600
295.9300
296.1600
1976:07
297.2000
299.0500
299.6700
302.0400
303.5900
306.2500
1977:01
308.2600
311.5400
313.9400
316.0200
317.1900
318.7100
1977:07
320.1900
322.2700
324.4800
326.4000
328.6400
330.8700
1978:01
334.4000
335.3000
336.9600
339.9200
344.8600
346.8000
1978:07
347.6300
349.6600
352.2600
353.3500
355.4100
357.2800
1979:01
358.6000
359.9100
362.4500
368.0500
369.5900
373.3400
1979:07
377.2100
378.8200
379.2800
380.8700
380.8100
381.7700
1980:01
385.8500
389.7000
388.1300
383.4400
384.6000
389.4600
1980:07
394.9100
400.0600
405.3600
409.0600
410.3700
408.0600
1981:01
410.8300
414.3800
418.6900
427.0600
424.4300
425.5000
1981:07
427.9000
427.8500
427.4600
428.4500
430.8800
436.1700
1982:01
442.1300
441.4900
442.3700
446.7800
446.5300
447.8900
1982:07
449.0900
452.4900
457.5000
464.5700
471.1200
474.3000
1983:01
476.6800
483.8500
490.1800
492.7700
499.7800
504.3500
1983:07
508.9600
511.6000
513.4100
517.2100
518.5300
520.7900
1984:01
524.4000
526.9900
530.7800
534.0300
536.5900
540.5400
1984:07
542.1300
542.3900
543.8600
543.8700
547.3200
551.1900
TABLE 1.5
Seasonally Adjusted
M1 Supply:
1959:01–1999:07
(billions of dollars)
Source: Board of Governors,
Federal Reserve Bank, USA.
(
Continued
)
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32
Part One
Single-Equation Regression Models
1985:01
555.6600
562.4800
565.7400
569.5500
575.0700
583.1700
1985:07
590.8200
598.0600
604.4700
607.9100
611.8300
619.3600
1986:01
620.4000
624.1400
632.8100
640.3500
652.0100
661.5200
1986:07
672.2000
680.7700
688.5100
695.2600
705.2400
724.2800
1987:01
729.3400
729.8400
733.0100
743.3900
746.0000
743.7200
1987:07
744.9600
746.9600
748.6600
756.5000
752.8300
749.6800
1988:01
755.5500
757.0700
761.1800
767.5700
771.6800
779.1000
1988:07
783.4000
785.0800
784.8200
783.6300
784.4600
786.2600
1989:01
784.9200
783.4000
782.7400
778.8200
774.7900
774.2200
1989:07
779.7100
781.1400
782.2000
787.0500
787.9500
792.5700
1990:01
794.9300
797.6500
801.2500
806.2400
804.3600
810.3300
1990:07
811.8000
817.8500
821.8300
820.3000
822.0600
824.5600
1991:01
826.7300
832.4000
838.6200
842.7300
848.9600
858.3300
1991:07
862.9500
868.6500
871.5600
878.4000
887.9500
896.7000
1992:01
910.4900
925.1300
936.0000
943.8900
950.7800
954.7100
1992:07
964.6000
975.7100
988.8400
1004.340
1016.040
1024.450
1993:01
1030.900
1033.150
1037.990
1047.470
1066.220
1075.610
1993:07
1085.880
1095.560
1105.430
1113.800
1123.900
1129.310
1994:01
1132.200
1136.130
1139.910
1141.420
1142.850
1145.650
1994:07
1151.490
1151.390
1152.440
1150.410
1150.440
1149.750
1995:01
1150.640
1146.740
1146.520
1149.480
1144.650
1144.240
1995:07
1146.500
1146.100
1142.270
1136.430
1133.550
1126.730
1996:01
1122.580
1117.530
1122.590
1124.520
1116.300
1115.470
1996:07
1112.340
1102.180
1095.610
1082.560
1080.490
1081.340
1997:01
1080.520
1076.200
1072.420
1067.450
1063.370
1065.990
1997:07
1067.570
1072.080
1064.820
1062.060
1067.530
1074.870
1998:01
1073.810
1076.020
1080.650
1082.090
1078.170
1077.780
1998:07
1075.370
1072.210
1074.650
1080.400
1088.960
1093.350
1999:01
1091.000
1092.650
1102.010
1108.400
1104.750
1101.110
1999:07
1099.530
1102.400
1093.460